Time’s Up for Investors

Any time a major issue arises that affects the private sector, I have what I call a Perth Amboy moment, named in honor of James Thurber’s story “More Alarms at Night,” in which he notes that he was lying awake in the wee hours trying to remember the name of the town Perth Amboy. Crises keep us investors up at night. Did a company just have a major crisis that’s going to be in all the headlines for the next month? How much will investors punish a company that incurred a risk that nobody anticipated? And is that company in my portfolio? Because if it is, I’m lying awake at night, trying to think about whether that crisis is something I can anticipate.One of the reasons sustainable investing is so useful is that we look at risks more broadly than so-called mainstream investors, whose inquiries into company health and well-being are often limited to financial disclosures. Sustainability factors can definitely affect value, and we’ve avoided many value meltdowns by looking for signs that companies are skating on thin ice in terms of things that could cause a crisis, provide a springboard for litigation, and affect employee morale and productivity.

There is no doubt that a culture of sexual harassment can affect company value. When the extent and depth of Fox News’ sexual harassment problems started coming to light, several companies that were prominent advertisers pulled their ads from “The O’Reilly Factor.” Reuters published a piece noting that Uber’s culture problem—which was a major factor behind the resignation of the company’s CEO—caused four mutual fund companies to write down the value of Uber’s shares by up to 15%.

The difference between sexual harassment and a lot of other sustainability-related risks is that a culture of harassment is almost always invisible. We could anticipate that BP would continue to have safety problems in 2010: the company had a long history of significant safety issues, including fatalities, that were significantly worse than that of other oil majors. The agencies that enforce workplace safety make enforcement information available publicly.

The only enforcement available for most U.S. employees on sexual harassment is Title VII of the Civil Rights Act, and the way that statute was written and has been enforced in courtrooms makes it almost impossible to use to pursue a claim of sexual harassment. There’s a long list of reasons why. For instance, in order to successfully pursue a court case, the victim must complain almost immediately after an incident occurs. As we read in most of the accounts of harassment, especially in companies with cultures that foster it, the first incident is almost always something that victims try to laugh off, or ignore, or hope will go away, because they fear that complaining will make them workplace pariahs, as it often does. Moreover, the first incident is often something that courts would judge not to be actual harassment. It’s the pattern and persistence of harassment that makes it so corrosive, not the one time that someone asks an employee to turn around so a boss can better admire a posterior. There’s also no effective mechanism to prevent retaliation after the complaint is made. You see that over and over in the accounts of the women at Fox News: their programs were moved to unpopular time slots, their ability to get hard-hitting interviews was curtailed—and a lot of them were just plain fired.

Do I believe that? Yes. It happened to me.

Here’s my #MeToo moment: I spent one summer working for a federal agency that involved maintaining a popular campground. My crew chief one day asked me if I would go with him to a new campground that was under construction to check out how the project was going. Once we got there—and past all the locked gates we had to go through to do it—he turned off the truck engine and started asking for kisses. He didn’t stop till I got out of the truck and started walking back—several miles on dirt roads. “I’ll take you back to the station,” he said, “but don’t tell anyone. It’ll be your word against mine.” I did tell. That was only a week or two before the summer job ended anyway, so I didn’t hear anything back, but friends who worked there longer than I did said that the outcome of the incident was that my employee file was marked “no rehire.”

Another feature of courtroom cases on Title VII is the fact that many courts hold employers blameless if they have training programs on sexual harassment. Is it good to have those? Of course. Are they enough to eliminate harassment? Of course not. Cultural problems take more than Band-Aids to fix, but courts don’t recognize that.

So, how can investors tell if companies are really serious about eliminating cultures of harassment? By looking at what companies do besides saying they’re equal opportunity employers and having mandatory training programs for diversity and harassment. The first thing, saying “we’re an Equal Opportunity Employer,” is what I call the cannibalism caveat. A company whose code of ethics or sustainability program consists of “we will obey all relevant laws” isn’t saying much. If that’s all you’re going to say, then you might as well list everything that’s against the law, like cannibalism, in your code.

Addressing culture means being aware of the culture, not just providing annual mandatory training programs, no matter how good they are. There’s a lot of evidence that such programs, by themselves, are ineffective: see the recent pieces in the New York Times, the Washington Post, and Harvard Business Review. You need more than that. What more? There are lots of possibilities: make it safe for people to complain without retaliation, take complaints seriously, encourage civility in every-day interaction, and (not least) promote more women, and assure that women and men have the same opportunities to get any job in the company, and that those jobs pay the same whether the incumbent is a man or a woman. One of the most striking things in every story we’ve seen about sexual harassment is the imbalance in power between the harasser and the victim, and the tendency for companies who stand out for fostering harassment cultures to protect the highly-paid people—often men.Pay equity will also help right that power imbalance.

The statements and opinions expressed are those of the authors of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.

Julie Gorte, Ph.D. is Senior Vice President for Sustainable Investing and oversees environmental, social and governance-related research on prospective and current investments as well as the firm’s shareholder engagement and public policy advocacy. Julie is also a member of the Pax World Gender Analytics team and the portfolio management team of the Pax Ellevate Global Women’s Leadership Fund. Prior to joining Pax, Julie served as Vice President and Chief Social Investment Strategist at Calvert. Her experience before she joined the investment world in 1999 includes nearly 14 years as Senior Associate and Project Director at the Congressional Office of Technology Assessment, Vice President for Economic and Environmental Research at The Wilderness Society, Program Manager for Technology Programs in the Environmental Protection Agency’s policy office and Senior Associate at the Northeast-Midwest Institute. She received her Bachelor of Science in Forest Management at Northern Arizona University and a Master of Science and Ph.D. from Michigan State in resource economics.

The evidence that sustainability, or ESG, has financial relevance continues to grow. As we look for reasons why sustainability seems to be associated with good performance, risk has emerged from the literature as one of the main contributors. Read more

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